Outsourced accounting isn’t the answer for high-growth businesses

Outsourced accounting isn’t the answer for high-growth businesses
Tal Kirschenbaum
April 13, 2023
In this article:
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
See Ledge in action

TL;DR – Key takeaways

  • There’s a severe shortage of accountants just as businesses need them more than ever
  • To solve for this, there’s been a dramatic increase in outsourced accounting
  • Outsourced accounting has its pros, such as serving as a flexible stop-gap solution
  • But outsourced accounting also comes with heavy costs
  • If your business is handling a high volume of payments and a fragmented stack, you might not have a choice about outsourcing accounting right now, but it’s not a scalable long-term solution 
  • It’s time to evaluate your processes and implement the right automated finance operations solutions that can scale 

There’s an acute shortage of accountants in the US

More than 300K accountants have left their jobs in the past two years – that’s a 17% decline, according to the WSJ. At the same time, the pipeline of up-and-coming accountants is steadily dwindling: the number of US students who completed a bachelor’s degree in accounting declined nearly 9% in 2020. 

As a result, 87% of businesses say that they find it increasingly hard to secure the talent they need for general accounting. 

At the same time, the need for accountants is increasing

As the supply of accountants turns downward, the demand is only increasing – the number of postings for US accounting and audit roles totaled 177,800 jobs, the highest since at least 2008.

While accounting has always been a critical business function, it’s never been more important than it is today – not only are businesses handling a high volume of digital payments and complex payment stacks, but finance teams also now need to support initiatives such as ESG and navigate ever complex international tax laws. 

The result? Bloomberg doesn’t mince words when it says “the accountant shortage threatens capitalism’s future.”

To solve for this, there’s been a dramatic increase in outsourced accounting

Large firms have long outsourced accounting functions, often overseas, but interest in outsourcing across businesses of all sizes and in all industries has skyrocketed in recent years. According to our analysis, Google searches for the term outsourced accounting increased by 2,657% in the past 6 years. 

This approach for high-growth businesses has its pros and cons.

outsourced accounting

Pros of outsourced accounting

  • Outsourced accounting can provide a flexible solution for filling in much needed gaps 

Outsourced accounting enables businesses that were previously unable to manage their day-to-day tasks to now meet demand. Strapped for accounting resources, businesses that outsource more repetitive tasks such as payment reconciliation, AP and AR, and procurement can still ensure timely financial management. 

  • Outsourced accounting can be signed on quickly

Given that accounting jobs take an average of 56 days to fill today, outsourced accounting can ensure that companies maintain continuity in financial operations and address immediate staffing needs without the lengthy process of recruiting, interviewing, and onboarding full-time employees.

  • Outsourced accounting is easily scalable in the short term 

As your company experiences seasonal fluctuations, crunch periods, or rapid growth, outsourced accounting can help you scale your finance department efficiently. You can add or reduce resources as needed without long-term commitments, allowing for greater adaptability in a dynamic business environment.

  • Outsourced accounting can be cost-effective 

An experienced accountant in the US can cost $70-100K a year, while an equally qualified professional abroad goes for a fraction of that. Outsourcing also means you don’t need to pay the overhead costs of full-time benefits and retirement, making it a potentially cost-effective option for high-growth businesses.

  • Outsourced accounting can provide great work

Like outsourcing anything, the quality of work really varies, but many finance teams have a great experience outsourcing accounting functions and find that their contractors do high-quality work that really drives value for the business. 

Cons of outsourced accounting

  • Outsourced accounting can provide terrible work

On the flip side of the coin, many finance teams have a bad experience outsourcing accounting functions and get work riddled with errors and inconsistencies. When this is the case, outsourcing accounting only incurs unnecessary time and costs.

  • Outsourced accounting can have long ramp-up times and hidden costs

When outsourcing accounting functions, you still need to invest time and resources in training the outsourced team and transitioning your processes. This can include sharing company-specific knowledge, providing access to software or systems, and aligning workflows. These costs may not be included in the initial outsourcing contract and can add up over time.

  • You lose control over critical accounting processes

When even routine and mundane functions are outsourced, you lose the direct oversight and ability to quickly address issues that arise, leading to potential inefficiencies and errors. What’s more, an outsourced accountant will never have the same in-depth knowledge and expertise as your in-house team, leading to a loss of insights that could impact your financial decision-making process.

  • Outsourced accounting puts you at higher security and compliance risks

Outsourcing accounting functions to a different country may expose your company to legal and compliance risks, particularly related to data protection and privacy regulations. If a data breach occurs at the outsourced firm, your company may face penalties or legal expenses to address the issue. Additionally, there may be costs associated with ensuring that the outsourced firm complies with local and international accounting standards.

  • Communicating and coordinating with outsourced accounting can be a burden

Managing an outsourced team can require additional effort in terms of communication and coordination, particularly when working across different time zones. Scheduling meetings, addressing urgent issues, or exchanging information can become more complex, which may lead to delays and increased administrative costs.

  • Outsourced accounting is in such high demand that it too will run thin

Manual labor is a finite resource, even on an international scale. Staffing companies are already predicting that overseas accounting talent is in such high demand that it too will soon fail to meet the demand. India itself is grappling with a chartered accountant shortage and is already failing to meet local demand.

For high-growth businesses, the pros don’t outweigh the cons

Outsourcing is the right move for young startups and small businesses – before you reach a certain scale, it doesn’t necessarily make sense to hire a full-time accounting resource or invest in systems and tools.

But once a company reaches a certain level of maturity, it’s the right move to bring accounting in-house full-time so that the company can exercise control over processes and address issues when they happen. At the end of the day, accounting is such a mission-critical business function that it cannot be delegated to contractors as a permanent solution.

“Over and over again, good accounting practices have produced the levels of trust necessary to found stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest, and worse.”
Jacob Soll, “The Reckoning – Financial Accountability and the Rise and Fall of Nations”

The fact that finance teams operating at scale are outsourcing accounting, either to cut costs or because they can’t find full-time talent, speaks to the inefficiencies of their accounting processes and systems. Why continue investing in headcount for routine accounting functions that can be more effectively and cost-efficiently solved by technology?

The right automated accounting solutions are a scalable long-term solution

The accountant shortage shows no sign of abating. The need for accountants will only grow. Teams that are outsourcing accounting functions in the interim also need to evaluate processes and implement more efficient systems to reduce their reliance on manual labor in the long term.

It’s imperative for businesses to adopt technology that automates finance operations. In addition to addressing current labor shortages and automating mundane and routine tasks such as reconciliation, the right automated finance operations solution can also:

  • Provide total control to monitor your processes in real-time
  • Enable your team to identify discrepancies faster and to minimize losses
  • Give you the confidence that your data is accurate
  • Ensure quality to build the trust you need with your customers
  • Free your team to do more fulfilling, strategic, and analytical work

Does your finance department have systems and processes in place to safeguard you from the accountant shortage in the near and long-term?

We're on a mission to automate and simplify finance operations for teams working at scale.

New York

325 Hudson St, 4th Floor, New York, United States 10013

Tel Aviv

8 Shaul HaMelech St. Tel Aviv, Israel 6416202